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US Bankruptcy Court Approves Investigation into Fugitive Indian Jeweler’s Firms

Nirav Modi

The Bankruptcy Court for the Southern District of New York has approved investigation into the $2 billion fraud allegedly committed by diamond merchant Nirav Modi in collusion with some executives at the Punjab National Bank (PNB). The court has appointed Alvarez and Marsal (A&M), turnaround management and performance improvement company, to conduct the inquiry, according to the Economic Times.

A&M has been asked to “investigate the circumstances surrounding the alleged fraud involving… Nirav Modi, Modi entities.. and certain employees of PNB,” the report quoted the latest court order as saying. The investigation will be led by Dhruv Phophalia, managing director, A&M India.

The U.S. court-appointed examiner, John J Carney, and his counsel have held telephonic meetings with the counsel for Modi-owned Firestar Diamond’s debtors — HSBC Bank USA, Israeli Discount Bank of New York, and PNB — the Indian Ministry of Corporate Affairs and the Office of the United States Trustee, a court document said, DNA reported.

The investigation has to be carried out before the court goes ahead with bankruptcy proceedings against Modi’s companies — Firestar Diamond Inc, A Jaffe Inc and Fantasy Inc — the court was quoted as saying by ET. Earlier in March 2018, the court had passed an interim order to stop creditors from collecting debt from Nirav Modi-owned Firestar Diamond Inc. after it filed for bankruptcy.

A meeting of the creditors was convened by the court in New York on March 30. In February 2018, Mihir Bhansali had filed for bankruptcy on behalf of three companies — Fantasy Diamond Inc, Fantasy Inc, and A Jaffe Inc. Bhansali is the president and sole director of Jaffe Inc, according to the Press Trust of India.

The investigation into Firestar Diamond Inc, of which Modi was the majority stakeholder, is expected to reveal the company’s role in facilitating the flow of money from PNB. Carney is responsible for determining the extent to which Modi entities have the ability to influence the actions taken by Firestar, according to DNA.

The U.S. examiner has collected one terabyte of data from Modi’s defunct companies. The investigation will look into communications, books and records, bank statements, vendor information, organizational charts, agreements, jewelry valuations, banking and other financial records, internal policies and protocols, and inventory/sale/consignment documents. The examiner’s fees and expense alone will be between $1.3 million and $1.5 million for this investigation.